1. 1 International Financial Reporting Standards IFRS for SMEs IFRS Foundation-World Bank 18–20 October 2011 Sarajevo, Bosnia and Herzegovina Copyright © 2010 IFRS Foundation. All rights reserved.

2. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 2 The IFRS for SMEs Topic 1.7(b) Quiz and Discussion Section 23 Revenue Pascal Frerejacque

3. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 3 Questions about Section 23 Revenue

4. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 4 Section 23 – Discussion questions Question 1: Which of the following are not covered by Section 23 Revenue? a.Revenue from lease agreements? b.Changes in FV of financial assets and financial liabilities or their disposal? c.Change in FV of biological assets relating to agricultural activity? d.All of the above?

5. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 5 Section 23 – Discussion questions Question 1: Which of the following are not covered by Section 23 Revenue? a.Revenue from lease agreements? b.Changes in FV of financial assets and financial liabilities or their disposal? c.Change in FV of biological assets relating to agricultural activity? d.All of the above

6. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 6 Section 23 – Discussion questions Question 2: Goods with list price of 1,000 sold to customer on normal credit terms. Customer pays 690 in full settlement. The 690 = 1,000 list, less 200 trade discount, less 100 volume rebate, less 10 prompt payment discount. Of the 690, 50 is sales tax to be remitted to government. How much revenue should be recognised? a. 640? b. 1,000? c. 700? d. 690?

7. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 7 Section 23 – Discussion questions Question 2: How much revenue should be recognised? a. 640? b. 1,000? c. 700? d. 690? 1,000 list price less 200 trade discount less 100 volume rebate less 10 prompt ‑ settlement discount less 50 sales tax collected on behalf of the government = 640.

8. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 8 Section 23 – Discussion questions Question 3: Percentage of completion must be used to recognise revenue from: a.rendering of services and construction contracts? b.rendering of services only when the outcome can be estimated reliably? c.construction contracts only when the outcome can be estimated reliably? d.both b and c?

9. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 9 Section 23 – Discussion questions Question 3: Percentage of completion must be used to recognise revenue from: a.rendering of services and construction contracts? b.rendering of services only when the outcome can be estimated reliably? c.construction contracts only when the outcome can be estimated reliably? d.both b and c? ¶23.14 and 23.17

10. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 10 Section 23 – Discussion questions Question 4: Car dealer sales promotion – free servicing and 2-years zero interest credit. Recognise revenue separately for: a.entirely sale of goods? b.sale of goods and rendering of maintenance services? c.sale of goods, rendering of services, and a financing element (interest) related to the deferred payment?

11. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 11 Section 23 – Discussion questions Question 4: Car dealer sales promotion – free servicing and 2-years zero interest credit. Recognise revenue separately for: a.entirely sale of goods? b.sale of goods and rendering of maintenance services? c.sale of goods, rendering of services, and a financing element (interest) related to the deferred payment? ¶23.8

12. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 12 Section 23 – Discussion questions Question 5: A sells goods to B for 950 on 1/1/20X1, and incurs selling cost of 20 at the same time. B negotiates one year interest- free credit (payment due 31/12/20X1). If B had borrowed to pay up front, interest rate = 10%. How much revenue from sale of goods does A recognise at 1/1/20X1? a. 950? b. 864? c. 970 d. 930?

13. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 13 Section 23 – Discussion questions Question 5: How much revenue from sale of goods does A recognise at 1/1/20X1? a. 950? b. 864? c. 970 d. 930? A financing transaction is included. Calculation: 950 ÷ 1.10 = 864. ¶23.5 At 31/12/X1, when 950 is received: Cash950 Receivable864 Interest income 86

14. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 14 Section 23 – Discussion questions Question 6: Fixed price construction contract 1,000,000. Contractor incurs costs of 10,000, 890,000, and 200,000 in Years 1, 2, 3. At end of Year 1 outcome cannot be estimated reliably, but 10,000 costs are recoverable. At end of Year 2, can make a reliable estimate of 200,000 future costs to complete. How much revenue and cost should contractor recognise in Year 2? See next slide...

15. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 15 Section 23 – Discussion questions Question 6, continued: How much revenue and cost should contractor recognise in Year 2? a.Revenue 818,182 and costs 900,000? b.Revenue 808,182 and costs 890,000? c.Revenue 808,182 and costs 908,182? d.Revenue 808,182 and costs 900,000?

16. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 16 Section 23 – Discussion questions Question 6, continued: How much revenue and cost should contractor recognise in Year 2? a.Revenue 818,182 and costs 900,000? b.Revenue 808,182 and costs 890,000? c.Revenue 808,182 and costs 908,182? See next slide d.Revenue 808,182 and costs 900,000?

17. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 17 Section 23 – Discussion questions Revenue = 900,000 costs for work performed ÷ 1,100,000 total expected costs = 81.82% completion x 1,000,000 price = 818,182 contract revenue recognised to end of Year 2. 818,182 less 10,000 revenue recognised in Year 1 (limited to recoverable costs) = 808,182 recognised in Year 2. continued...

18. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 18 Section 23 – Discussion questions Cost = 81.82% x 1,100,000 expected total = 900,000 recognised to end of Year 2. 900,000 less 10,000 costs recognised in Year 1 = 890,000 recognised Year 2. BUT, total contract costs will exceed total revenue, so recognise additional loss: Total revenue 1,000,000 less 818,182 already recognised = 181,818 for Year 3. Expected costs Year 3 = 200,000. Excess Year 3 costs over revenue = 18,182 loss in Year 2. Expense Year 2 = 908,182 = 890,000 incurred + 18,182 in respect of the onerous contract.

19. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 19 Section 23 – Discussion questions Question 7: Fixed price construction contract 1,000,000. Contractor incurs costs of 200,000, 400,000, and 100,000 in Years 1, 2, 3. At end of Year 1 reliable estimate of future cost was 400,000. At end of Year 2 estimated future costs were 150,000. Contract completed in Year 3. How much revenue should contractor recognise in Years 1, 2, 3? See next slide...

20. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 20 Section 23 – Discussion questions Question 7, continued: How much revenue should contractor recognise in Years 1, 2, and 3? ChoiceYear 1Year 2Year 3 (a)333,333466,667200,000 (b)1,000,00000 (c)001,000,000 (d)333,333

21. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 21 Section 23 – Discussion questions Question 7, continued: (a) 333,333, 466,667, 200,000 Year 1: 200,000 incurred ÷ 600,000 total expected = 33.33% complete X 1,000,000 contract price = 333,333 revenue for Year 1. continued...

22. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 22 Section 23 – Discussion questions Question 7, continued: Year 2: 600,000 incurred ÷ 750,000 total expected = 80% complete X 1,000,000 contract price less 333,333 recognised in Year 1 = 466,667 revenue for Year 2. Year 3: 1,000,000 contract price less 800,000 revenue recognised to end of Year 2 = 200,000 contract revenue recognised in Year 3.

23. © 2010 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 23 Questions or comments? Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation.

24. © 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org 24 This presentation may be modified from time to time. The latest version may be downloaded from: http://www.ifrs.org/IFRS+for+SMEs/SME+Workshops.htm The accounting requirements applicable to small and medium ‑ sized entities (SMEs) are set out in the International Financial Reporting Standard (IFRS) for SMEs, which was issued by the IASB in July 2009. The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this PowerPoint presentation, whether such loss is caused by negligence or otherwise.